Introduction

How do people make decisions? How can judgments and choices be improved? These two questions define the field of Behavioral Decision Research (BDR). BDR has grown rapidly in the past 60 years as an area of inquiry. Psychological research on the processes of judgment and choice has been called "psychology's leading intellectual export to the social sciences as well as a to a host of applied fields" (Tetlock, 2002, Psychological Review). In particular, BDR has had an impact on the areas of management, marketing, accounting, and finance. In addition, BDR has had an impact on the fields of medicine, law and public policy. The field of behavorial decision research is intensely interdisciplinary, employing concepts and tools from economics, statistics, and other disciplines, as well as psychology.

The purpose of this course is to provide students with an overview (introductory survey) of behavioral decision research. Topics covered in the course include judgment under uncertainty, (probability judgments), preferences and dealing with conflicting values, and risk taking. We will focus on understanding the psychological processes underlying judgments and choices. The focus also will be on the individual decision-maker; although we will briefly touch on issues in group and organizational decision making.

CHANGE IN MEETING LOCATION: Our first class meeting will be on Wednesday, August 26th (Classes will meet in Seminar Room G, 2nd floor in the East Keller wing. Locate elevator inside entrance to the right.) Class will meet from 8:45 a.m.-11:15 a.m.

Please get the readings from my assistant, Bobbie Clinkscales (660-7862), workspace A303D Academic Center, prior to the class on August 26th. This course will be conducted as a research seminar, which means that the students will be expected to take an active role in the class sessions. Each week we will discuss approximately 5 articles. You should think about a few questions and/or comments about each article. You should also think about "real world" examples of the judgment/decision phenomenon described in each paper. The articles will be a mixture of "classic" and new papers.

Your grade will be based on your participation in class discussion and a paper written by you on a BDR topic of your choice. However, I encourage you to talk with me about possible topics before you begin work on your paper. For most of you the paper should be some form of a literature review. It can be a paper that goes into depth on a topic like overconfidence or relates an area of BDR to an applied topic. The paper is due Monday, December 7th, 2009. Experimental or empirical papers are possible but they are hard to complete in a semester. The paper should be no more than 30 pages double-spaced. Please use American Psychological Association (APA) style guidelines for how to handle references, headings, etc. Several of the papers we will read for the class are examples of good theory-based literature reviews.

Schedule of Topics and Readings

**(This schedule is tentative. We may take longer than one class session on some topics depending on class interest. We may also read a few additional papers depending on student interest.)** Therefore, if you have to miss a class be sure to check with me or one of your fellow students on what will be needed to be read for the following week.

Class Session #1 (8/26) - Introduction: 1) Course Overview, 2) Overview of the Methods for Decision Research, 3) Rationality versus Bounded Rationality. Depending on how much time is spent on the introduction, we may start the section on judgment under uncertainty (see paper #3).

1. Simon, H.A. (1955). A behavioral model of rational choice. Quarterly Journal of Economics, 69, 7-19.
2. Shah, A. J. & Oppenheimer, D. M.(2008). Heuristics made easy: An effort-reduction framework. Psychological Bulletin, 134, 207-222. [This article builds upon the paper by Simon (1955). This paper also provides a recent, and good, example of a "literature review" with a theoretical perspective.]
3. Milkman, K.L., Chugh, D., & Bazerman, M.H. (2009). How can decision making be improved? Perspectives on Psychological Science, 4, 379-383.
4. Tversky, A. & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185, 3-20.  [This may be the most influential article on subjective probability judgments ever written.]

Questions to think about:

1. What does the concept of "bounded rationality" mean? More generally, what defines "rationality" in judgment and choice?
2. What does the concept of "bounded rationality" mean? How does it differ from the assumptions about decision making found in most economic textbooks?
3. What is a judgment heuristic? In particular, according to Tversky and Kahneman what are defining characteristics of judgmental heuristics? How is the definition the same (or different) from that of Shah and Oppenheimer?

Class Session #2 (9/2) - Probabilistic Reasoning I: Heuristics and Biases.  (This session will definitely extend to session #3)

1. Tversky, A. & Kahneman, D. (1983). Extensional versus intuitive reasoning: The conjunctive fallacy in probability. Psychological Review, 90, 293-315. [This paper, in my opinion, gives the best introduction to the "heuristics and biases" perspective on subjective probability judgments.]
2. Klayman, J. Soll, J.B., Gonzales, Vallejo, C. & Barlas, S. (1999). Overconfidence: It depends on how, what, and whom you ask. Organizational Behavior and Human Decision Processes, 79, 216-247.  (Overconfidence is one of the most studied judgmental biases. Recent follow-up papers are Soll, J. & Klayman, J. (2004). Overconfidence in interval estimates. Journal of Experimental Psychology: Learning, Memory, and Cognition, 30, 299-314 and Tsai, C.I., Klayman, J. & Hastie, R. (2008). Effects of amount of information on judgment accuracy and confidence. Organizational Behavior and Human Decision Processes, 107, 97-105.
3. Simmons, J.P. & Nelson, L.D. (2006). Intuitive confidence: Choosing between intuitive and nonintuitive alternatives. Journal of Experimental Psychology: General, 135, 409-428.
4. Wolford, G., Miller, M.B., & Gazzaniga, M. (2000). The left hemisphere's role in hypothesis formation. The Journal of Neuroscience, 20, 1-4.
5. Rottenstreich, Y. & Tversky, A. (1997). Unpacking, repacking, and anchoring: Advances in support theory. Psychological Review, 104, 406-415.

Questions to think about:

1. What is the logic of studying judgment by focusing on errors in reasoning?
2. What areas of management, law, medicine, etc., might be influenced by overconfidence effects?
3. With probability judgments, how you ask the question matters a lot. Try to think of examples applied to your area of study.
4. What tasks in the applied fields you are interested in are most likely to be influenced by judgmental heuristics?

Class Session #3 (9/10) - Probabilistic Reasoning II.

1. Brownstein, A.L. (2003). Biased predecisional processing. Psychological Bulletin, 129, 545-568.
2. Gigerenzer, G., Czeslinski, J. & Martignon, L. (1999). How good are fast and frugal heuristics? Decision Science and Technology reprinted in T. Gilovich, D. Griffin, & D. Kahneman (Eds.) Heuristics and Biases (2002). Gigerenzer and his colleagues have strongly advocated the study of the heuristics used in judgment and choice but from a different perspective than Kahneman and Tversky. See Gigerenzer & Brighton (2009, Topics in Cognitive Science) for a recent summary of this program of research.
3. Kahneman, D., & Frederick, S. (2002). Representativeness revisited:  Attribute substitution in intuitive judgment. In T.Gilovich, D. Griffin, & D. Kahnenan (eds.) Heuristics and biases: The Psychology of Intuitive Judgment. Cambridge University Press.

Questions to think about:

1. Recently it was argued that "If one were to attempt to identify a single problematic aspect of human reasoning that deserves attention above all others, the confirmation bias would have to be among the candidates for consideration" Do you agree? Why?
2. What is your opinion about the research approaches of Kahneman, Tversky and Gigerenzer? Why, for example, might the use of heuristics that use less information, computation, and time might improve judgmental accuracy as well as lead to systematic biases?
3. What are some unanswered questions that you see in terms of probabilistic reasoning?

Class Session #4 (9/16) - Judgment with Multiple Cues and Summary of the section on thinking under uncertainty.

1. Lusk, C.M. & Hammond, K.R. (1991). Judgment in a dynamic task: Microburst forecasting. Journal of Behavioral Decision Making, 3, 55-73. [Social Judgment Theory (SJT) or "policy capturing" is one of the most active areas of BDR. While this is an "old" paper it does a good job of illustrating the SJT approach. Cooksey, R.W. (1996), Judgment analysis: Theory, methods, and applications. Academic Press, is a good summary of much of this work. See also the recent paper by Hogarth and Karelaia,( 2007) below.]
2. Stanovich, K.E. & West, R.F. (2008). On the relative independence of thinking biases and cognitive ability. Journal of Personality and Social Psychology, 94, 672-695.
3. Wilson, T.D. & Brekke, N. (1994). Mental contamination and mental correction: Unwanted influences on judgments and evaluations. Psychological Bulletin, 116, 117-142. [This article makes clear how difficult it can be to eliminate judgmental biases.]

Questions to think about:

1. What tasks (problems) that you are interested in could be studied using the methods of Lusk and Hammond?
2. Are there cultural as well as individual differences in rational thought?
3. To what extent do you believe people can correct judgmental errors that may exist?

*Depending on how quickly we cover material, the sessions on probabilistic reasoning may be extended. If so, the three following classes will be pushed back a week.

Class Session #5 (9/23) - Preferences and dealing with Conflicting Objectives: Basic Tasks, Models and Modes of Thought. [This class will extend over to the next week.]

1. Tversky, A. (1972). Elimination by aspects: A theory of choice. Psychological Review, 79, 281-299.
2. Payne, J.W., Bettman, J.R., & Johnson, E.J. (1988). Adaptive strategy selection in decision making. Journal of Experimental Psychology: Learning, Memory and Cognition, 14, 534-552. 
3. Broder, A., & Schiffer, S. (2006). Adaptive flexibility and maladaptive routines in selecting fast and frugal decision strategies. Journal of Experimental Psychology: Learning, Memory and Cognition, 32, 904-918. 
4. Dijksterhuis, A., Bos, M. W., Nordgren, L. F. & van Baaren, R. B. (2006) On making the right choice: The deliberation-without-attention effect. Science, 311, 1005-1007.
5. Payne, J.W., Samper, A., Bettman, J.R., & Luce, M.F. (2008). Boundary conditions on unconscious thought in complex decision making. Psychological Science, 19, 1118-1123.

Questions to think about:

1. A compensatory process is often viewed as the "rational" way to deal with problems involving conflicting objectives.  Do you agree?  If not, why not?
2. Why would people use noncompensatory decision strategies even if the strategies are not fully rational?
3. What is the difference between output versus process methods in the study of decisions?
4. How might conscious and unconscious thought differ in terms of decision making? When might one form of thought be better?

Class Session #6 (9/30) - Task and Context Effects.

1. Tversky, A., Sattath, S., & Slovic, P. (1988). Contingent weighting in judgment and choice. Psychological Review, 95, 371-384.
2. Hsee, C.K., Loewenstein, G.F., Blount, S., & Bazerman, M.H. (1999). Preference reversals between joint and separate evaluations of options: A review and theoretical analysis. Psychological Bulletin.
3. Tversky, A. Simonson, I. (1993). Context-dependent preferences: Management Science, 10, 1179-1189.
4. Hogarth, R.M., & Karelaia, N. (2007). Heuristic and linear models of judgment: Matching rules and environments. Psychological Review, 114, 733-758. (This is a more theoretical paper. It relates to the work on probabilistic reasoning as well as preferences.)

Questions to think about:

1. If A is preferred to B under some circumstances while B is preferred to A under other circumstances, do people really have preferences to be measured?
2. What factors such as product familiarity should impact the size of task and context effects?

Class Session #7 (10/7) - Emotion s and Other Issues in Multi-Attribute Judgment and Choice.

1. Luce, M.F. (1998). Choosing to avoid: Coping with negatively emotion-laden consumer decisions. Journal of Consumer Research, 24, 409-433.
2. Finucane, M.L., Peters, E., & Slovic, P. (2003). Judgment and Decision Making. The dance of affect and reason. In. S. Schneider & J. Shanteau (Eds.) Emerging Perspectives on Judgment and Decision Research, Cambridge University Press.

Questions to think about:

1. What are the differences between cognitive and emotional factors in decision-making?
2. How do affect and reason interact in judgment and choice?

Again, we may need to push the following classes on decisions under risk back a week depending on how quickly we cover the previous material.

Class Session #8 (10/14) - Decisions Under Risk. Please treat sessions 8 - 10 as one unit. Almost certainly we will extend session 8 to the following week.

1. Lopes, L.L. (1995). Algebra and process in the modeling of risky choice. In Decision Making from the Perspective of Cognitive Psychology, Academic Press.
2. Kahneman, D. & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47, 263-291.  [This article is the most cited article ever in this leading economics journal.]
3. Tversky, A., & Kahneman, D. (1992). Advances in Prospect Theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty, 5, 297-323.
4. Brandstatter, E., & Gigerenzer, G. (2006). The priority heuristic: Making choices without trade-offs. Psychological Review, 113, 409-432.

Questions to think about:

1. What are the differences and similarities between expected utility theory and prospect theory?
2. How important is the distinction between risk and uncertainty?
3. What kinds of heuristics might people use in solving risky decision problems?
4. How might problems that you are interested be thought of in terms of decision making under risk (uncertainty)?

Class Session #9 (10/21) - Alternative Perspectives on Risk Taking.

1. Rottenstreich, Y., & Hsee, C.K., (2001). Money, Kisses, and Electric Shocks: On the affective psychology of risk. Psychological Science, 12, 185-190.
2. Shiv, B., et.al. (2005). Investment behavior and the negative side of emotion. Psychological Science, 16, 435-439.
3. Venkatraman, V., Payne, J.W., Bettman, J.R., Luce, M.F., & Huettel, S.A. (2009). Separate neural mechanisms underlie choices and strategic preferences in risky decision making. Neuron, 62, 593-602.

Questions to think about:

1. How do the motivational factors involved in risky choice relate to the earlier papers on affect and reason?
2. How might emotions and cognition relate to risk taking?
3. Why might experts not be immune to judgmental biases?
4. How might neurosciences help us understand risk-taking?

Class Session #10 (10/28) - Finish section on Risky Decisions. This is a "catch up" class. Also, be prepared to discuss your ideas for a paper for class.

1. Weber, E.U., & Hsee, C. (1998). Cross-cultural differences in risk perception, but cross-cultural similarities in attitudes towards perceived risk. Management Science, 44, 1205-1217.

Questions to think about:

1. What cross-cultural differences in decision behavior might exist?
2. What 3 topics would you like to write about for your class paper?

Class Session #11 (11/4) - Time preferences (discounting the future).

1. McClure, S.M., Laibson, D.L., Loewenstein, G., & Cohen, J.D. (2004). Separate neural systems value immediate and delayed monetary rewards. Science. 306, 503-506.
2. Read, D., & Read, N.L. (2004). Time discounting over the lifespan. Organizational Behavior and Human Decision Processes. 94, 22-32.
3. eber, E.U., Johnson, E.J., Milch, K.F., Chang, J.C., Brodscholl, J.C., & Goldstein, D.G. (2007). Asymmetric discounting in intertemporal choice: A query-theory account. Psychological Science. 18, 516-523.

Class Session #12 (11/11) - Improving Decisions.

1. Payne, J.W., Bettman, J.R., & Schkade, D.A. (1999). Measuring constructed preferences: Towards a building code. Journal of Risk and Uncertainty. 19, 243-270.
2. Benartzi, S. & Thaler, R.H. (2007). Heuristics and biases in retirement savings behavior. Journal of Economic Perspectives, 21, 81-104. This paper illustrates how BDR might impact public policy debates.
3. Botti, S. & Iyengar, S.S. (2006). The dark side of choice: When choice impairs social welfare. Journal of Public Policy & Marketing, 25, 24-38.
4. Goldstein, D.G., Johnson, E.J., Hermann, A., & Heitman, M. (2008). Nudge your customers towards better choices. Harvard Business Review, December.

Questions to think about:

1. What are the implications of the psychology of decision behavior for efforts to improve decsions?
2. Why people might not use decision aids?

1. Stasser, G., & Titus, W. (2003). Hidden profiles: A brief history. Pyschological Inquiry, 14, 304-313.
2. Payne, J.W. (2009). Investment Commitee Decisions: Potential Benefits, Pitfalls, and Suggestions for Improvement. Unpublished Manuscript. Duke University.
3. Soll J. & Larrick, R. (2009). Strategies for revising judgment: How (and how well) people use others' opinions. Journal of Experimental Psychology: Learning, Memory and Cognition, 35, 780-805.
4. Herzog, S. M., & Hertwig, R. (2009). The wisdom of many in one mind. Improving judgment with dialectical bootstrapping. Psychological Science, 20, 231-237.

Questions to think about:

1. When will 2 or more heads be better than 1 head in making a decision?
2. What could be done to improve group decision processes?

11/25 No Class - Thanksgiving Break

Class Session #14 (12/2) - Review and Future Directions.

1. Weber, E. U. & Johnson, E. J. (2009). Mindful judgment and decision making. Annual Review of Psychology.

Questions to think about:

1. How would you describe humans as decision makers? That is, how do you think people generally make judgments and choices? How good is human decision making? How might it be improved?
2. What 3 decision problems do you think should be investigated next by the BDR field?

RECOMMENDED BOOKS

New and Popular Books: Below are six recent (and very popular) books that are based on behavioral decision research. These books are highly recommended. The past few years has seen a rapid growth in best-selling books written for general public that deal with behavioral decision research topics.

Ariely, D. (2008) Predictably Irrational: The hidden forces that shape our decisions. Harper Collins. A best-selling book on behavioral economics by one of Fuqua's own. I highly recommend that you watch a video by Dan on decision making that can be found on ww.Ted.com/talks.

Lehrer, J. (2009). How we decide. Houghton, Mifflin Harcourt. This is an easy read book that builds on recent neuroscience work on decision making.

Makridakis, S., Hogarth, R., & Gaba, A. (2009). Dance with change: Making luck work for you. One World Publications.

Thaler, R. H. & Sunstein, C. R. (2008). Nudge: Improving decisions about health, wealth, and happiness. Yale University Press. One of the authors, Cass Sunstein, is the new Czar for regulation in the Obama administration.

Lewis, M. (2004). Moneyball: The art of winning an unfair game. (Paperback version.) This is not a book on decision behavior research. However, it is a fun read on intuitive judgment versus statistical reasoning.

Taleb, N.N. (2007). The black swan: The impact of the highly improbable. Random House. This is not a book on decision research. However, it addresses issues of human judgment in a very thought-provoking matter. The recent crash of the financial markets has made this a very popular book.

Research and Text Books:

Hastie, R. & Dawes, R.M. (2001). Rational Choice in an Uncertain World. Sage Publications. An easy to read and good overview of the psychology of judgment and decision making.

Russo, J. E. & Schoemaker, P. J. H. (2002). Winning Decisions, New York: Currency. This book was written for executives. It is filled with lots of management examples of behavioral decision concepts and advice for making better decisions.

Koehler, D.J., & Harvey, N. (2004) (Eds.) Blackwell handbook of judgment and decision making. Blackwell Publishing. This book is a large and expensive volume that gives an overview of much of the current thinking in BDR. A paperback version is available.

Lichtenstein, S. & Slovic, P. (2006) Eds.  The Construction of Preferences.  Cambridge University Press.  A large collection of articles supporting the “construction” perspective.

Payne, J. W., Bettman, J. R., & Johnson, E. J. (1993). The Adaptive Decision Maker, Cambridge University Press. This book provides a framework for understanding when, and how, people decide how to decide.

Hammond, J.S., Keeney, R.L. & Raiffa, H. (1999). Smart Choices: A Practical Guide to Making Better Decisions. Harvard Business School Press. This book, as suggested by the title, provides and excellent introduction to decision analyses as a tool for making better decisions.

Kahneman, D. & Tversky, A. (2000). Choices, Values, and Frames. Cambridge University Press. This book contains a selection of articles growing out of “Prospect Theory” (Kahneman & Tversky, 1979)

Gilovich, T., Kahneman, D. & Griffin, D. (Eds.) (2002). Heuristics and Biases: Psychology of Intuitive Judgment. Cambridge University Press. This book contains a selection of chapters (articles) on intuitive probability judgment.